Valyooo (99.34)

7

I am more of a macro investor than individual stocks...not the best with those. I remember there were a bunch of questions that I had that confused me when I was brand new. A handful of CAPS players got me to where I am today, so I am offering my opinion on a few misconceptions. There will probably be about 10 of these blogs over the course of a few weeks.

For part four I want to focus on why it is important to do a lot of reading, and why it is very important to formulate your own opinion.

If everybody had the same opinion on stocks, the market would not move...everybody would agree on the same price. There are bears on TV at all times, bulls on TVs at all times, and analysts covering thousands of stocks with both buy and sell ratings.

How can these guys manage so much money and seem so educated and make it on TV, yet 80% of them underperform the market? It is simple math. Everybody has an opinion, but not everybody can outperform. How could people as a whole outperform themselves? It is logically impossible. So if you know 80% of fund managers underperform, and it is only that 20% that you should listen to, you should already see why it is important to formulate your own opinion when if you read a random article it is 80% of the time going to do worse than the S&P 500.

Readon number 2: You don't know the intentions. Sometimes a fund manager will be short the market as it is rising. He is then underwater. He needs to get on CNBC and spook people into selling so that he isn't losing. Or, conversely, a fund manager may also have not bought stocks as they were rising, and is missing out on all the gains, and tries to scare the market back down so he can get in at a cheaper level. This is very important and yet another reason to formulate your own opinion. Or an analyst may issue a buy ranking because that cimpany gives a lot of business to its investment banking side. Its illegal, but it happens.

Reason 3: An analyst may tell you when to buy, but they may not ocme on TV and tell you when to sell until a few weeks after you should have sold. If you dont know why you bought, you wont know when to sell.

Those are my main reasonings why I think it is so important to have your own opinion. If you don't have an opinion, buy MDY or SPY instead of paying a mutual fund a 3% load just to underperform those two.

I also think it is very important to read as miuch as you can. If you read history of business cycles and ecomomics it is easier to see something unfolding that many others might not see. If you read many fundamental and techncial books you can learn new methods. If you read a lot of analysis or blogs you might find a flaw in your existing thinking that needs change. Don't just read investing literature though, read everything...history, math, science, psychology, etc. It keeps you sharp and you never know when you will uncover something that has a striking similarity to the stock market. Reading psychology books has taught me more about investing patterns than anything I have read from Ben Graham.

5) blogs here on caps...a lot of crap, some definitely good stuff though, and how I got started.

The hardest part though, is that I think you should not use their analysis as sources of trading ideas. Read everything you can from all those sources, and use them to formulate your own opinions about sectors and stocks, and then paper-test your strategies and see if they worked, if they didn't, and why.

I would also suggest the following books:

Technical anaysis for the trading professional by Constance brown

The little book of stock market cycles by Jeffrey Hirsch

The winners curse by Thaler

Come into my trading room by Alexander Elder

Reminisces of a stock operator

I actually can't remember all the books I loved, but stay away from any of those "how I made 53k in127 seconds" books, day trading books (I think daytrade is stupid, but that aisde most of these books are lousy authors trying to get you to buy their contentless book), and personally I think all those value investing books written from 100 years ago are useless, but others will disagree. One up on wall street is a classic, but that style does not work anymore in the world of big conglomerates.

Remember, this analysis comes from places like goldman sachs, citi, morgan stanley...companies that needed a bailout to stay in business....don't take everything they say at face value because of the fancy name.

Read every article and blog you can, read both sides of every argument, and then follow which one plays out to be correct, and see why it was correct. In this world, you have got to figure it out largely on your own. It's not like a hard science where there is a right and a wrong and the more people who know the more the world grows. In this zero-sum game its hard to find somebody giving genuine information, although not impossible.

Well you blew it when you mentioned Jim Cramer. He is one of the worse people to listen to. He is basically a bipolar trader and nothing more. He forgets what he says. He tells you you to buy something one day and tells you to sell it the next. Miss that show and oops.

He touted how to invest in apple at over 650 and then says dont when it is at 450. He told you to buy deep in the money puts for Mosaic back in 2008 when it was over 100. Yes you got wiped out. He tells you to buy or sell just clicking on a computer screen and looking at a few stats as his guide.

He is a charlatan that people need to ignore. He has HURT people with his arrogant and whimsical advice.

I am going into my sixteenth year of endurance investing in equties. Thus, I can tell you from personal experience that you'll do far, far, better in the long run buying and holding a small piece of a great business, like, say, a Coca-Cola, forgetting about it for the next 50 years, and then reading something totally unrelated, yet of quality, such as Zen and The Art of Motorcycle Maintenance, than you will trying to swim through the vast, quagmire of useless information swirling around on the internet and television.

Stocks are very much like trees in that if you've done your job correctly, meaning that you have picked out a good tree, paid a reasonable price for it, and cultivated the ground (which is your temperament) correctly before you plant it, then the time to pull that tree up out of the ground is almost, never.

I have always believed that if you cannot invision your grandchildren sitting under the trees that you plant, then the tree isn't worth planting at all!

Thus, the great trick in this business is learning NOT to sell, not to mess with a good tree...even in its winter season. This is extremely difficult for most people to do. This is yet another reason why most people are not wealthy.

CORRECTION: I meant Cramer suggesting buying deep in the money calls NOT puts. Had you did buy puts you would have made a ton I suppose. Not having learned any lesson, he again urged people to buy deep in the money calls for Apple, instead of just buying an equivalent dollar amount in common. That would have put people in the $500 call range and most lost a ton if they listened to him.

Jon Stewart called him out back in 2009. Cramer said he would "change" and is still doing the same nonsense before the crash.

Listen to Cramer for his insights, not his stock picks. He teaches you about stuff like window dressing, hedge fund activity, things that affect the stock market that you won't read about in a fundamental or a technical book. He warns people of macro trends as well. Don't fault him for making 100 stock picks a day, and then getting some of them wrong. He returned 24.2% a year for a long time for his hedge fund, how bad could he be? When the facts change, he changed his mind. What do you do sir? Fall in love with a stock and then when the facts change act stubborn and stick with it?

daveandre I disagree. What is a wonderful business in one year, can be terrible 5 years later due to government regulation, industry decline, new management, etc. Yes there are some companies like KO, PM, PG, that have been good for a long time. But the majority of businesses do not stay that good for long.

It is completely lazy, wreckless and careless to simply forget about a company you own. If ithe company continues to be a great company, I have no problem holding it for my entire life, as I probably will do with PM. I do have a problem with just forgetting about a stock instead of continuing do diligence just so I can align myself with the grey beards.

1) Have you never made a bad call in your life? Want me to cherry pick your inaccurate picks? Your track record is nothing compared to Cramers. And he doesnt even own stocks, just his charitable trust, in which he plays with an open hand

2) Whats better, losing 100% of the premium on a single call, or being down hundreds of dollars on 100 shares of AAPL? I'll take the former over the latter any day of the week. The premium lost is less than the lost amount on aapl x 100 shares that are the same amount represented by buying one call

jiltin, I tend not to red thumb stocks. I did do the redthumbing of triple index funds for awhile to boost my accuracy, but it never helped so I stopped.

daveandrae, you are preaching to the choir with me. I've constantly argued that it is all about wealth accumulation and you do that by finding good companies and investing in them and keeping a watchful eye on them.

Val, that "insight" does the average investor little good. He is nothing but a burnt out hedge fund manager who actually can be comical, but nothing is comical to the person losing money listening to his erratic picks.

You might find some points interesting because you said you work at a hedge fund, hence you have more of a trading mentality.

He has no business picking thousands of stocks a year to begin with. He cannot possibly have done any meaningful DD on all those calls. Once in a awhile he will back off with a call when asked about an obscure small cap company.

Cramer was so brilliant that he had you buying in the SUMMER of 2008 when he should have had you selling if he really knew what he was doing. That was Jon Stewart's point. He attacked Cramer for NOT being there to protect the average investor.

And of course I have made bad picks. I have mentioned a couple on this site. But I mentioned a lot more that made people money if they listened. But I fault no one for ignoring any of my advise here because afterall it is anonymous. In fact if you are insane enough you are free to read all my blogs and blog replies and see for yourself how my predictions turned out.

And no Val, an average investor that watches Cramer's show isn't buying 100 shares of Apple. That person is buying maybe a couple or a few shares of Apple. So while they are at a loss if they bought when it was at $700 they still get a yield and the stock is working its way back up.

Because you are ignoring his audience. They aren't hedge fund managers. They are simple average Joes. They don't have the financial ability to shirk off a total option loss. They get that yield because they own common, which means they can still recoup their paper losses. Options have plenty uses, advising average people to "invest" in a company is not one of them.

And Val I was watching his show daily then. He absolutely had people buying then. He was touting FSLR in 300s, Fro in 100s, ACI in 80s (even after the company guided total year eps at 2.40). I could go on and on.

Finally in October he threw his hands up telling people to get out with 5 years worth of cash when he should have done that months ago and then having people to start easing back in.

Then comes March his colleague Doug Kass called the bottom at March 9, 2009. Cramer decides to change it to HIM calling the bottom. I finally saw the bottom once I heard Bernanke guarantee the banks. I made many suggestions for people to play with C and BAC options back then. It is all on record here.

I admit I missed the ugliness of February 2009. I thought we bottomed in 2008, but there were very few bulls in March and April of 2009 here. Me, Rof, Rd80, Option, chk34, Port to name a few that told people to buy.

Jon Stewart was spot on. He called Cramer out, with his "I never said that" lies. I would link those videos here but I am a low tech person.

And as a PS, and not trying to pick on you because I suspect you are the type of person that needs to learn things on his own, but it was you who said it is easy to time the market. Why then did it take about 4,000 lost DOW points before an expert like Cramer to "see" it?

And Val are you even reading my responses fully? I said Cramer's average viewer ISN'T buying 100 shares of AAPL. They are buying 1 to maybe 5 shares. If they bought the calls they got wiped out. With the common they are still in the company even after suffering the drop, and still earning income off it.

As for my "timing" comment, you did seem to imply that it wasn't as hard as people might think here in comment #3:

If you are changing your tune, that is ok. But you still haven't answered my question about Cramer. If he is so "good" why did it take the market to drop over 4,000 DOW points before he finally said "sell."